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Resilience and the key risks
A resilient industry will be one which is able to withstand and/or bounce-back from sudden or acute shocks (such as a spike in input prices, a disease outbreak or a collapse in cereal prices). Such a shock might lead to some businesses failing. But, if new businesses replace them or others expand to fill the gap the industry might still be seen as resilient.
While we don’t want to forget the simple concept of resilience as withstanding a shock, a more precise definition would be helpful. This could be to define resilience as the ability of the industry to absorb and / or adapt to ‘acute’ disturbances which do not change underlying market conditions. This may lead to some change and reorganisation within the sector as appropriate while leaving it with a similar level of activity and the same basic identity (including structure and function) so as to deliver outputs as determined by the market.
Farm businesses exist in a complicated and changing risk environment. At a workshop in July, stakeholders identified a number of the specific risks facing the agricultural industry. These were the risks they thought most likely to be a shock to the industry. Some of these risks seem more likely to have an effect over a longer time but it can be difficult to make a distinction and we’d welcome your thoughts. These risks have been divided into five established categories which are useful when thinking think about the challenges facing the industry, as follows:
production risks – possible future events which make final production outcome uncertain, including;
- Pests and Diseases (animal and plant);
- Weather effects such as rain damage to crops, drought or water scarcity, severe storms and flooding ;
market risks – uncertainties associated with prices of inputs and outputs and contract conditions, such as;
- volatility in the costs of inputs and the price of outputs;
finance risks – variability of interest rate or value of financial assets and availability of credit, such as;
- banks imposing lending restrictions or tightening credit terms;
institutional risks – including government actions (including by other countries, such as import bans / restrictions) and regulatory changes that can affect costs or returns, such as;
- changes to pesticide regulations, water framework directive, Nitrate Vulnerable Zones;
other risks – includes health related risks and liabilities for production, including;
- Zoonoses and health and safety have been considered but were not identified as a major concern by most stakeholders.
Stakeholders we’ve spoken to have told us that climate change will significantly increase the probability and impact of shocks to the industry. They noted an increase in production risks in particular. Risks from severe weather events, water scarcity and an increased likelihood of pest and diseases were also particular concerns for the near future. How well farmers adapt to such risks will play a key role in the industries future resilience.
Some industry stakeholders think that increased trade liberalisation and reform of the Common Agricultural Policy (CAP) could significantly challenge the resilience of farmers and the industry, particularly if the Single Payment Scheme (SPS) is reduced or removed. This is widely seen as providing a ‘cushion’ against fluctuations in income resulting from other sources. However, while the SPS payments are made to farmers, a significant proportion is then passed on to others. This is in the form of higher input prices, particularly for land, and means that removal of SPS would have less of an impact than a simple comparison of income and SPS payments suggests. To the extent that the SPS does end up in the hands of farmers, its removal will tend to reduce income levels and increase the relative magnitude of income fluctuations, at least in the short term. The SPS has insulated farmers from the need to develop robust risk management strategies and removed an incentive for aiming to increase their competitiveness. CAP reform, in particular removal of the SPS, would therefore be likely to promote increases in productivity in the sector and developments in means to mitigate risks.
- Whether our concept of resilience in the agricultural industry is useful and, if not, how it might be changed to better understand the resilience of the industry?
- What are the key risks, and is our understanding of their nature, likelihood and impact correct?
Hi , I am surprised the risk of peak oil is not mentioned .(This is when oil production reaches its peak of profitable and easy extraction ) This would mean increased costs for fuel for tractors , farm machinery and lorries, as well as increaed production costs of fertilizers and Pesticides.
In Cuba when Oil was cut off by the Russians and USA agriculture suffered badly . Horses and ploughing oxen were brought back on to the land and fertilizers were local and organic. Im not saying we will have the same scenario, but heavily increased oil prices or oil shortages need to be considered as a risk element in my opinion.
I agree with the surprise expressed that Peak Oil is still not being addressed. It was raised in at least one response to the previous consultation but does not appear to have been picked up on. The government does recognise the challenges posed to the resilience of local government and the NHS by peak oil so it seems odd that the challenges posed by peak oil to agriculture are not included in this consultation.
We need smaller scale farms based nearer to towns providing local food. Qualified young farmers and growers need to be able to access affordable land to grow. There needs to be allocations of new agricultural ties with ‘low environmental impact’ criteria given to start new farms. This is the only way forward. Looking for resiliance or sustainability in large scale agriculture is an oxymoron!
I agree with Frances Beaumont and Darren Trent. The only way for sustainable farming in the future is for the production of low environmental impact food. My family and all of my friends families desperately want to be able to buy organic local seasonal food at reasonable prices, from local farms or food co-operatives. There are many people working towards these goals ie the Transition Towns , The Permaculture Association etc who would be delighted to talk to Defra . There has been a lot of amazing work done growing food crops in really inhospitable places without chemicals ie next to the dead sea in the driest saltiest place ever, see utube Permaculture in action, Greening the Desert Geof Lawton, project in Jordan. Its time to think outside the conventional boxes and educate our Farmers how to provide our food, make a living ,and improve the soil for the future.
I would like to further support the comments already made. I too would very much welcome the opportunity to buy local, organic and seasonal food at a reasonable price. Furthermore, the increased level of interaction between customer/consumer and producer on a CSA (Community Supported Agriculture) model would have many benefits, as I can personally attest. Importantly, social capital is increased through the direct link. Consumers are more likely to understand their food better and how it is produced if they know their grower, and are typically producer loyal, thus providing a solid financial basis for a producer in adverse market conditions.
It’s clear to me that it’s time to stop seeing food production in a vacuum. The production and consumption of food should link us all directly to our land and wider environments; good diet, based on good quality ingredients, is a key part of good health; good social links between different members of society are key to a healthy, functioning society; good (organic) farming is key to healthy biodiversity and decreased carbon emissions. It’s time to see agriculture as an interlinked part of the social, cultural and economic web, and therefore as a supremely important factor to get right if we are to face the challenges of peak oil and climate change with any confidence at all.
1.) Crowding out (or decreased sense of responsibility to help on the part of individuals)/ cynicism / greed – less motivation to care for next generation – “take what you can get, and don’t give a damn” [?] / “do what you’re paid to do, and no more” [?] / “ignore the bigger picture”
2.) Water Framework Directive: nitrates; RB209 (official fertilizer recommendations). [FSA nitrites risk; Japanese pickled seaweed correlation]; economic optimum of fertilisation; with some global allocation of fertilizers
3.) Food PRODUCTION (use of resources) not being assigned the correct level of priority – due to transient (random [?]) economic factors driven by ‘irrational’ considerations (ie not creating the most wellbeing – ‘silly fads’).
— mispricing of inputs or outputs (to beyond capacity of buffers) —
Fundamental to production is soil, its management and maintaining/improving its capacity for production. Care for soil must be included in the risk assessment.
It is always helpful when assessing on-line discussion responses to know what involvement a respondent has with the industry, particularly whether they make a living from the industry and if so in what form. The Competitiveness Paper recently put by the Commercial Farmers Group on their web site sums up our own business view on the issues affecting the Competitiveness of English Agriculture and Horticulture as a whole. It indicates that the three priorities that need addressing are CAP Reform after 2013, Research and Development and Training , Education and Skills. We understand why Government is interested in Industry Resilience but maintain that the primary reason why English Agriculture and Horticulture will or will not be resilient will be its ability to compete and therefore be profitable. The bahaviour/ lifestyle issues have been important and to a lesser degree will remain so but they pale into insignificance in relation to the ability to earn a reasonable income. This is particularly so for the area we are involved in, field Grown Fresh Produce . We have seen over the last 12 years a greater than 20% decline in of our degree of self sufficiency for most Fresh Produce categories. In relation to the Secretary of State’s exhortation for productivity increases this is clearly a major issue and the decline needs to be halted.
I came here to try to say that we should be focusing on food security. I tried to read defra’s document, but kept running across things like ” A European Size Unit (ESU) is a measure of the economic size of a farm business based on the gross margin
(enterprise output less variable costs) imputed from standard coefficients for each commodity on the farm. The
application of these standard coefficients results in the Standard Gross Margin (SGM) for a farm or group of farms.
1 ESU = €1200 SGM. The Standard Gross Margin may be different from actual margin on a farm because of the wide
variation between farms with the same physical composition but the above table should give a reasonable approximation
of the distribution of farms by economic size.
”
Why is describing that we want food security and support for our farmers so hard. Frankly I find the whole thing incomprehensible.
Thank you for all of your comments to date. These will really help us but in the final week we’d like to get as many contributions as possible to help us develop our thinking.
Although we haven’t analysed and assessed the responses in detail, some general points are beginning to emerge.
There appears to be widespread agreement amongst contributors that key to improving resilience is increasing and sustaining profitability, with diversification also being seen as helpful.
There is a wider range of views on what should be done in addressing the competitiveness of the industry. Some contributors have suggested that we need to move to more localised and smaller scale production whilst others have noted how small scale farmers can become tied to the business and unable to draw income from other activities. We have also seen views expressed on a need for larger and more efficient farms. With respect to benchmarking, some concern has been expressed about its practical application and the need for IT infrastructure.
Key risks of animal disease and price volatility have been identified by many contributors, as have impacts on the soil and water availability. The impact of ‘peak oil’ is another risk which has been raised by some contributors.
A number of you have expressed concerns over the impacts of regulation on farm businesses and we have received suggestions on how regulation might be better targeted for the industry.
There seems to be a large measure of agreement about the key areas that we identified for development to improve resilience and competitiveness. The relevance of developing and applying R&D has drawn a number of views, with a number of contributors seeing a need to enable cutting edge technology to be applied. The requirement for increased skill levels in the industry and to develop career paths has also been noted, though concerns over the ability of time-poor farmers to access training have also been raised.
The usefulness of joint ventures has been discussed but better marketing strategies and the use of derivatives have been said by some to be more appropriate for managing risks.
Although the summary above doesn’t capture everything that is in your posts, we will be drawing on the detailed and nuanced points to develop our analysis. We also look forward to seeing more post on these issues as we enter the last week of the discussion.
Andy
Broadly speaking, the definition of resilience that has been employed by Defra is useful (i.e ability to respond to acute disturbances). That said, as this work develops, it will be useful to attach some probabilities or some commentary relating to the specific risks that farming faces. This should be at both the aggregate level and individual business level impacts. With one or two exceptions, at an aggregate level the physical risks surrounding production are relatively small. A range of factors contribute to this, be it the relatively benign, maritime, knowledge-base of the farming sector or the relatively developed agricultural infrastructure. As a whole, UK agriculture is relatively consistent in terms of output. However at the specific business level, these risks become greater, especially the risks of extreme weather events which tend to be localised (perhaps with the exception of the wet 2008 harvest).
When looking at key risks, the attempt made in the discussion document is a good starting point, but could be built on further. For example, more detailed consideration of commercial risks are needed, given they may be more prevalent as the changing business and financial climate puts greater strain on food manufacturers and input suppliers. The ability to raise finance to consolidate or to invest has become more difficult and costly for many businesses. Some are already highly exposed through very high levels of gearing. There is a very real risk of manufacturers being forced into rationalisation and at the extreme into receivership. The consequences may be positive if this leads to long-overdue efficiency in manufacturing. Yet this could come at a price in terms of loss of competition for supply/ markets as well as more direct risks to farmers in the case that the business contains substantial farmer investment (as was the case with Dairy Farmers of Britain). At the very least, the lack of finance is likely to lead to a less competitive manufacturing industry in future, an issue considered elsewhere on this discussion forum.
Market risks might appear to be both greater and more likely than others highlighted in the discussion document. The experiences of the food crisis 2007/08 represented a watershed for agriculture and many farm businesses will have experienced unprecedented peaks and troughs in prices. It is hard to say whether such extremes in price swings (witness the dairy sector across Europe) will be seen again however we believe it is inevitable that there will be greater volatility in many commodity markets owing to various factors including:
- Running down of global stocks to use and tighter supply/ demand situation
- Climatic risks in many exporting regions
- Reduction of market supports
- Imposition of barriers to trade, especially export restrictions
- Commodity market movements and relationship between food and other tradable commodities (notably oil)
Volatility inhibits the transmission of clear long-term signals that are needed to make the long-term investments that are characteristic of farming businesses. Furthermore, many farms, especially livestock, operate on lengthy production cycles making it hard to react to short term changes in market situations.
Risk in the agricultural context is a complex subject. As an example, consider the livestock sector, where disease is a significant threat to the viability of farming.
Even where businesses have developed sophisticated approaches to manage risk of disease, there is a limit to the on-farm measures that can be taken to control all vectors of disease. Admittedly, some sectors currently have scope to improve their capability of managing disease risk but it is important to recognise that there are limits to on-farm risk strategies.
Further adding to the complexity is the fact that farmers tend to be small businesses. This reduces their ability to hedge financial risk, except for releasing capital that might be tied up in land, buildings and so on. Tenant farms face the additional challenge of not having a land-based asset that they can utilise to manage their exposure to short term financial risks.
In terms of subsequent work, an area to focus on is differentiating resilience to external shocks from adaptation to evolving trends. Perhaps foremost amongst the latter are climate change and policy reform, where the eventual outcomes could be better anticipated. A distinction should be made where farmers have the ability to adjust on-farm practices in line with evolving trends versus those where shocks cannot be widely anticipated.
This could link into a risk mapping exercise that considers the nature of risk (shock v trend) and the level of impact it has (industry v individual farmer). There is certainly value to seeking to break down risk further, given that the interventions and impetus required to address different risks are likely to vary. Fundamentally, farmers can more easily plan and budget where risk is more strongly linked to evolving trends. Perhaps most importantly, they can take discrete actions to make their businesses more resilient to risk. By contrast, it is more of a challenge for individual businesses to manage risk that is more sporadic and impacts on the industry as a whole.
Ultimately, this work should seek to help agriculture to reduce, mitigate and cope with risk. This is a complex subject and is worthy of further understanding of the issues that would help identify the most critical risk areas and highlight the potential scope for action by the industry and stakeholders.
Resilience and Sustainability
Both of these terms have technical definitions from systems theory which underpin their value as concepts in policy debate. They are relatively easy concepts to grasp in the abstract, but difficult to measure in practice. A useful simplification for keeping a clear view of how they are connected is to think of the sustainability of a system as its “life span”. Carrying on with the health analogy, resilience can be thought of as an overall measure of the healthiness of a system; it balances current well-being and capacity to deal with future challenges. Resilience, then, is a component of sustainability, not the other way round.
A generic property of resilient systems (whether we’re thinking about ecology or economics) is that some proportion of growth processes is diverted to maintaining a reserve which is isolated from the dynamics of the system and which then acts as buffer against shocks: think of seed banks or savings accounts. There is an obvious trade-off between maintaining reserve capacity. A couple of useful points to bear in mind here are that: (1) systems which have a reserve built into them don’t necessarily have smoother dynamics than ones which don’t, and; (2) deciding on the right balance between growth and reserve functions is probably an open-ended optimisation problem. That is, in natural systems for example, the “correct” amount of resource that a species should allocate to reserves depends on dynamic properties of it’s environment so evolutionary processes may result in a never-ending hunt for an optimum value which is not constant. In general, resilient responses to high levels of uncertainty in opportunities for growth might be either to (1) re-locate to a different, more stable, environment (e.g. switch to a different set of production activities), or; (2) increase reserves at the expense of growth. Both of these responses can be thought of as dependent on adaptive capacities, the first case perhaps demanding a more comprehensive adaptation capacity than the second. Both strategies also rely on the existence of heterogeneity/fragmentation/compartmentalisation in the environment (or economy) in order to be successful; in an imploding economy your savings might need to be in a box under the bed in order to be isolated from bank failures. This is one of the lessons from theoretical ecology which might apply more generally to resilience: for a given number of interacting components in a system, stability increases if the system as a whole is constructed from a set of partly isolated sub-systems. The practical implications of this type of result for UK agriculture are unclear at present.
Finally, an important but somewhat overlooked aspect of the resilience debate generally is the diagnosis and characterisation of current agricultural systems for their resilience properties. A minimum set of diagnostics would seem to be one for each of the domains of sustainability (i.e. the familiar threesome of environmental, economic, and social domains).
Retired from farming, was a vegetable manager, then a senior operations manager for an international food company.
Modern farming, like society, is addicted to diesel, steel, chemicals, and glossy advertisements.
It does not have to run out of diesel to cripple the industry, all it needs is a shortage, farming would grind to a halt.
Big tractors use less per acre, but they are a vicious circle that requires ever increasing horse-power.
Ditto with chemicals.
Efficiency is based on man-power, the one thing the world is not short of.
If it was based on energy a different picture emerges, if a EROEI (energy returned on energy invested) analysis was done on the food industry it would prove we are eating oil i.e. it consumes more calories than it produces.
Big farms require big tractors and big distribution systems to distribute the volume produced.
TOTAL dependence on diesel.
It’s a risk management issue that no one is addressing.
Farming can have no resilience whilst it has a vulnerability of that magnitude, all the other issues fade in to the category of ‘occasional hiccups’ which one expects when working in a natural environment.
I wrote the article on the website thirty years ago, and have watched the dependence grow exponentially ever since.
The calorie ratio has to change, whether farming can change is another question.
Bernard, yes yes yes, any rational mind knows this to be true. Peak oil and climate change should be dominating any future farming discussion yet still large agri-buisness control the thought process of Defra. How can something be so blantantly obvious yet Defra fail to even speak of it?
John, a brief comment (to find a conclusion one needs to expand it to include society).
Who is controlling who, both are a product of education, principally agricultural colleges where the belief is that science is the solution to everything. Reality is, science has dug us in to a hole, and as per common sense – when you are in a hole, stop digging. The next escalation will be GM, as if we have not interfered with nature enough already.
That leads nicely to climate change. It always has changed and humans will have to evolve/adapt to what ever it does, warmer or colder, my ‘money’ is on mother nature throwing a bout of PMT to put things right.
Forty seven years in farming, sixty nine years at the university of hard knocks have taught me panic resolves nothing, assessing the situation and start implementing correction processes pays dividends. The start has to be a good risk assessment (and that does not mean what comes out of the risk management training manual), it means start with your worse nightmare, like no diesel, and what you can do about it before it happens. Second, identify the basic criteria, third, start experimenting. But as I said, whether farming can change is another question so I will throw a challenge in to the discussion –
Is there anyone, DEFRA and or farmer/s, with the guts to try farming a different way, you’ll get laughed at, I was ….. right up to the point where they started doing it themselves.
You do not have forever, when government notices we have a looming food, water, energy crisis you know it is nearly too late.